Mortgage Bond Market Analysis - What's Going On?

Investors are taking a "glass half full" approach this morning with regard to economic data.  Factory orders came in much lower than expected, down 3.4 vs. expectations of -2.2 and previous of -1.7 but investors on both sides of the court (bond and stock traders) are taking the cue from oils rise since last Thursday.  The stock market is up marginally and the FNMA benchmark bond is down 21 basis points.  The RSI is still overbought and the current price of the benchmark bond is 20 basis points above the 1st level of support with a 55 basis point drop below that to the 2nd level of support which means that if traders get good news regarding ADP payrolls tomorrow and jobless claims on Thursday followed by non-farm payrolls on Friday, we could be in for a big drop.

On the flip side, with the big surprise we got from the jobless claims numbers last week, we might not see much in the way of a surprise but even a solidifying strong number could show consistency and traders might take that as a cue to keep selling bonds.  Either way, I think there is more risk of a sell-off than there is of investors jumping in and pushing bond prices much higher (with rates going lower as a result).  Here's the chart from this morning:

A bigger downside risk means...I would lock.  Tomorrow's ADP Private Payroll report doesn't typically have as big of an impact as Thursday's Jobless Claims which typically isn't as influential as Friday's Non-farm Payroll report and Unemployment Rate number.  Nonetheless, they can all move the market and if the numbers support each other, they could move it in a bad way - if you are looking to lock an interest rate any time soon.  I would recommend taking advantage of current prices and locking today.  If worse comes to worse you can float down or have me do your loan if your current lender doesn't offer a float-down option.

On docket tomorrow:  As previously mentioned, the ADP Private Payroll report comes out and expectations are for lower numbers than the January report (this would be good for rates).  The ISM non-manufacturing report is expected to come in at 56.5 - same as last month.  For those of us avid college football fans, tomorrow is NLOI signing day - National Letter of Intent signing day - which is when we get to find out who is going to be joining our college teams to help them compete for a national championship.

Feel free to share your thoughts in the comments section.  Like The Wunderli Team facebook page for intraday updates and other mortgage news and call me - 702-812-1214 - if I can help you or a friend / client with a mortgage.